Big Returns in a Small World

The new year can do strange things to an investor. After the clock struck midnight on Jan. 1, after all the year-end buying and selling wound down around me, I sat looking at the contents of my portfolio -- contents that seldom change. And as I looked, I noticed something:

Where is my diversity?

Oh, I own retail stocks and tech stocks and even a little company from the waste-management sector. But one thing that ties them all together is that they're all American. And not to sound unpatriotic, but I'm not at all sure this is a good thing.

Why?There's a plethora of reasons why I should be looking for new investments outside my country's circle of competence. Here are some of my favorites.

Investing in international companies gives me another way to recession-proof my portfolio, for starters. If the U.S. economy tanks and I have all my money sunk into U.S. companies -- no matter the industry -- then I'm bound to take a hit, at least in the short term. But if I pepper my portfolio with some global stocks -- good global stocks, though I hope that goes without saying -- I'm insuring myself against some additional fallout.

Furthermore, going global exposes me to new markets and ventures that I never would have considered stateside. If I can find a solid, growing international company that's reasonably priced, one I wouldn't mind holding for the long term, I'm a happy person. If it gives me an opportunity to become an early adopter to a market or industry that's on its way to the forefront, and if it gives me an opportunity to learn something new along the way, so much the better.

But none of this would mean a thing if international stocks consistently lagged their American brethren. The good news? They're movin' on up. Take the iShares MSCI EAFEIndex (AMEX: EFA) ETF, for instance, which holds such well-known international companies as BP (NYSE: BP) , GlaxoSmithKline (NYSE: GSK) , Total SA (NYSE: TOT) , Toyota (NYSE: TM) , Vodafone (NYSE: VOD) , and HSBC Holdings (NYSE: HBC) . The ETF, which tracks the international large-cap index, has beaten the S&P 500 by more than nine percentage points annually over the trailing-three-year period. Not too shabby!

The Foolish bottom lineIn this age of worldwide industries and international companies with household names, "going global" doesn't have to mean incurring massive risk and uncertain results. In fact, researching and investing in international companies can be another safeguard to your portfolio, adding additional diversity and the benefits that accompany it.

Are you interested in getting into the global market, but don't have the time to research companies yourself? Check out Motley Fool Global Gains, where Fool senior analyst Bill Mann does his homework and recommends two new international picks each month. A free trial is yours if you click here.

Hope Nelson-Pope is the Fool's online coordinating editor. As evidenced by her diversity woes, she owns none of the companies mentioned here -- yet. Glaxo and Total are Income Investor recommendations. Vodafone is an Inside Value pick. The Motley Fool has a disclosure policy.

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